In its simplest form, “Recapitalization” is a financial restructuring strategy that involves altering a company’s capital structure.
Recapitalization may include:
- Altering the mix of debt and equity in a company’s balance sheet
- Selling a portion of the stock/shares in order to remove some chips off the table while remaining involved in the growth of the company, and with the ability to sell the balance at a later stage, for a higher per share value than the first divestiture.
- The issuance of new debt or equity or a restructure thereof.
- Buying back existing stock.
- Refinancing existing loans to improve the financial structure of the company.
The goal of recapitalization can be to simply take some chips off the table by selling a minority or majority equity, and remove or reduce one’s day to day involvement. It can also be to enhance financial stability, reduce interest costs, or increase shareholder value as well as possibly other financial objectives.